Nov. 10 (Bloomberg) -- China’s exports probably fell at the slowest pace this year in October, pushing the trade surplus to an eight-month high and bolstering the case for policy makers to allow the yuan to appreciate.

The rebound in trade may intensify pressure from Europe, Japan and the U.S. for China’s currency to resume its appreciation, halted 15 months ago to help exporters. President Barack Obama said he will raise currency policy when he meets with President Hu Jintao in Beijing next week.

The annual pace of decline in exports probably eased to 13 percent in October, less than half the peak reached in May, according to the median of 31 forecasts in a Bloomberg News survey. The trade surplus may have climbed to $18.9 billion, from $12.9 billion in September, the survey shows.

“The government may de-peg the yuan from the dollar as early as March, when exports may be growing by more than 10 percent,” said Xing Ziqiang, an economist at China International Capital Corp. in Beijing. “For now, China’s policy makers are most concerned about exporters.”

Most of China’s economic data for October, including industrial production and retail sales, will be released in Beijing tomorrow. The projected trade surplus would be the highest in eight months, excluding seasonal distortions in January and February.

‘Tough Stance’

Xing’s view echoes that of state researchers, who said the government will probably reject calls from Europe and Japan for greater flexibility in the yuan. China will stick with its “tough stance” on the currency, Zhang Ming, a researcher at the Chinese Academy of Social Sciences, said in an interview.

European Central Bank President Jean-Claude Trichet said last week that a stronger Chinese currency would help the global economy and the International Monetary Fund has called the yuan “significantly undervalued.” Japanese Vice Finance Minister Yoshihiko Noda told reporters last week that it is “desirable for the yuan to be flexible.”

Obama will visit China from Nov. 15 amid trade tensions including a dispute over the tariffs he imposed on Chinese automobile tires in September. Last month, the U.S. Treasury Department criticized “the recent lack of flexibility” of the yuan.

Key Relationship

World Bank President Robert Zoellick said in Singapore today that the relationship between the U.S. and China is “fundamental” to the Asia region. He also said the world needs to be on the “offense” in pushing for more open trade and not just stand still or keep things from getting worse.

China has maintained the currency’s value at around 6.83 against the dollar since July 2008, after allowing it to rise 21 percent in the previous three years. Yuan forwards indicated yesterday that traders expect the currency to resume gains, climbing 3.3 percent in the next year.

Some exporters’ biggest concern is that the government may allow appreciation too soon, after manufacturing indexes and the nation’s biggest trade fair showed export demand improving.

“The significant improvement in export orders may be short-lived,” Ann Zhu, the owner of Tianjin Everfly Homedeco Co., a maker of bedding, carpet, table cloths and towels, said last week at the fair, in the southern city of Guangzhou. Zhu said that orders may only pick up temporarily because of restocking.

‘Fingers Crossed’

“Next year, we’ll keep our fingers crossed that the government will keep the exchange rate stable and that the export tax rebate won’t be cut again.”

China has said that it will move at its own pace on currency reform and People’s Bank of China Governor Zhou Xiaochuan added Nov. 6 that “pressure from the international community to allow yuan appreciation is not that big.”

World Bank Chief Economist Justin Lin defended China’s stance in a speech in Hong Kong late yesterday, the Wall Street Journal reported. “Currency appreciation in China won’t help this imbalance and can deter the global recovery,” the newspaper quoted Lin as saying in a lecture at the University of Hong Kong.

October’s data are likely to show China’s recovery gathering pace, which may enable the government to tighten monetary policy in the first half of 2010. Moody’s Investors Service yesterday raised the outlook for China’s debt rating to “positive” from “stable,” citing the nation’s success in steering a course through the global financial crisis.

Industrial production may have climbed 15.5 percent in October from a year earlier, the fastest pace in 16 months, the survey showed. Urban fixed-asset investment may have gained 33.5 percent in the first 10 months of this year.

Retail sales climbed 15.7 percent in October, according to the survey.

Credit Boom

An unprecedented $1.27 trillion of new loans this year is driving the recovery, adding to the risk of bubbles in stocks and property and resurgent inflation. M2, the broadest measure of money supply, may have climbed a record 29.5 percent last month, the survey showed. New loans may be 370 billion yuan for October, double the amount a year earlier.

Consumer prices, estimated to have fallen 0.4 percent in October, may start to rise in November, according to Isaac Meng, a senior economist at BNP Paribas SA in Beijing.

“Asset inflation and consumer-goods inflation will be a problem,” Meng said.

Policy makers may tighten home lending, sell more bills to drain cash from the financial system and require banks to lend less in 2010, Meng said. The central bank may also raise the key one-year lending rate by 27 basis points to 5.58 percent in the second quarter of next year, he added.

‘Social Stability’

Economists don’t all agree on the likely timetable for policy makers to pare stimulus measures, such as a $586 billion spending package focused on infrastructure.

“The Chinese really are fixated on one thing and one thing alone, which is social stability -- they don’t want to take a risk of another negative growth surprise” slowdown, Stephen Roach, chairman of Morgan Stanley Asia, said last month.

China may “go back to the well with bank-funded infrastructure-led spending programs” in the middle of next year, Roach said. Raising interest rates is not feasible “over the near term given their concerns about economic growth.”

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Last Updated: November 10, 2009 00:45 EST